DBS: Not all Uber-Grab scenarios will turn up roses for ComfortDelGro

Singapore two-dollar bills

Uber may have reached a deal to sell its Southeast Asian operations to Grab, but that leaves ComfortDelGro with a range of potential scenarios, DBS said in a note on Monday.

The bank pointed to ComfortDelGro’s pending deal to buy Lion City Holdings (LCH), a Singapore-based rental car business with a fleet of around 14,000 vehicles, from Uber; the deal is being reviewed for regulatory approval, DBS noted.

DBS said the probability of the deal proceeding now appeared low given the potential Uber-Grab deal, noting the anti-competition concerns.

The bank set its base case as the Uber-Grab deal boding well from Comfort.

“With the exit of Uber, and competition cedes, we could see market normalcy returning with the absence of heavy discounting and promotion. This would bode well for CD,” it said.

But DBS added that other potential scenarios included the Comfort-LCH deal proceeding, with Comfort holding most of the assets and with an eventual tie-up with Grab under the JustGrab platform. However, the bank said it appeared an unlikely outcome given the potential competition concerns.

Another potential scenario for the LCH deal proceeding was for Comfort to get LCH’s assets, but with UberFlash likely terminated, Comfort would be without a booking platform and a limited ability to utilize the assets, a clear negative for the company, DBS said; it considered the probability of this outcome as low.

Intensifying competition?

If the Comfort-LCH deal is terminated, Grab could intensify competition using its transport app and to further its ambition as a mobile payment app, DBS said, adding this would be negative for Comfort; it assigned a medium probability to this scenario.

Another potential scenario of receding competition could be positive for Comfort, DBS said.

“With the exit of Uber, Grab is to become the dominant player among private hire car apps, thus ceding competitive pressure in Singapore and to refocus its efforts in regional Southeast Asian markets, instead of Singapore (assuming Grab/Uber deal is approved),” DBS said. It assigned a medium probability to this scenario.

DBS rates the stock at Hold with a S$2.12 target price.

The stock is up 4.02 percent at S$2.07 at 3:32 P.M. SGT on Monday.